The Four Policies Every Nonprofit Should Have

In a recent conversation with a nonprofit about succession planning, we discussed certain policies that are critical for the board and chief executive to review and adopt. Why? Because they can trigger the departure of an organizational leader — either on the staff or the board.

While there are dozens of policies that apply to nonprofits (BoardSource offers a summary list and a book), there are four that we believe are the most critical for nonprofits to have.

Code of Ethics

Every nonprofit board member has ethical and legal standards to uphold for their service on a nonprofit board. There are three legal standards: duty of care, duty of loyalty, and duty of obedience. Establishing an organizational code of ethics can codify the expectation to abide by these duties, operate in alignment with organizational values, and ensure the transparent accountability of operations to stakeholders and the public. An annual review of the code of ethics should be done by all board and staff members.

Conflict of Interest Policy

A conflict of interest policy is sometimes embedded in the code of ethics, or it can be a stand-alone document that is reviewed and signed annually by every member of the board. It is not unusual to have a conflict, such as a board member who represents a company that the nonprofit does business with. It is paramount that the conflict is known and that the board member abstains from voting on any relevant motion. Conflicts of interest should be discussed when recruiting potential board members and the governance committee of the board should ensure that annual disclosures are documented and signed.

Whistleblower Policy

Federal law under the Sarbanes-Oxley Act prohibits corporations, including nonprofits, from retaliating against employees who call out fraudulent financial practices. In addition to accounting, whistleblower policies should encompass the entirety of operations, including a statement on document retention procedures and practices.

It is important to note that Section B of Part VI of the IRS Form 990 is entirely about policies. The organization must state if they have written policies including conflict of interest, whistleblower, and document retention and destruction, and if the board disclosed any conflicts and regularly reviewed said policies.

According to the IRS Form 990 instructions:

“A whistleblower policy encourages staff and volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization, specifies that the organization will protect the individual from retaliation, and identifies those staff or board members or outside parties to whom such information can be reported. A document retention and destruction policy identifies the record retention responsibilities of staff, volunteers, board members, and outsiders for maintaining and documenting the storage and destruction of the organization’s documents and records.”

Anti-Harassment Policy

While there has been more attention to sexual harassment in the workplace because of high-profile cases and the MeToo movement, we have found that many boards do not consider the harassment that can happen between donors and development staff or between board members and chief executives. Nonprofits must consider the realities of the power dynamic that exists and work to protect their employees and volunteers from abusive practices. Dr. Eryn Beaton at The Ohio State University co-led a study with the Association of Fundraising Professionals on this very topic. Their study is an important reminder to nonprofit boards that harassment is not always between the chief executive and a staff member, and that it can take many forms. Having a clear harassment policy supports staff and gives the organization a mechanism to address behaviors and improve culture.

We hope this summary provides insight for your organization and that everyone in leadership becomes familiar with these policies to ensure adherence and fidelity to their intent and the organization’s mission.

Article by: Kerri Laubenthal Mollard, Founder & CEO

2022-03-10T18:25:34+00:00March 10th, 2022|